Canada unexpectedly flips to deepest trade deficit since June

Canada recorded a goods trade deficit of C$2.28 billion ($1.7 billion) in March, the widest since June 2023 and missing expectations in a Bloomberg survey for a C$1.21 billion surplus.

Statistics Canada also revised the country’s trade surplus down to C$476 million in February from C$1.39 billion previously, revealing more softness in exports.

On a quarterly basis, goods imports were up 0.4% in the first three months of 2024, while exports fell 1.4%. That indicates the trade sector was a net drag on the economy in the first quarter, after having been the main driver of GDP growth in the fourth quarter.

Thursday’s data add to growing evidence of an economic slowdown as the country buckles under the weight of the Bank of Canada’s aggressive rate-hiking campaign. Policymakers are now mulling when to cut rates as they look for more evidence that inflation is headed sustainably back to the 2% target, and most economists in a Bloomberg survey expect a 25-basis point cut at the next meeting in June.

Exports fell 5.3% in March, with metals, minerals, energy and motor vehicles driving the decline. Overall, decreases were seen in nine of 11 product sectors.

Gold exports fell 32.5% after surging to a record high in February, when a large quantities were shipped to the UK and Switzerland. Despite the strong monthly decrease, March gold exports were still 14.7% higher compared with January, and 39.4% higher on a year-over-year basis.

Energy exports decreased 4.9% in March, mainly on lower exports of crude oil and bitumen, the fifth decrease in six months. This decline coincided with unplanned shutdowns at refineries in the US Midwest, an important destination for Canadian crude, as well as lower marine shipments to the UK.

Imports also declined 1.2% on the month, falling in seven of 11 product sectors, with electronics, metals, minerals and aircraft leading the drop.

Canada’s trade surplus with the US narrowed to C$6.48 billion from C$8.49 billion the previous month.

The country’s trade deficit with its second-largest trading partner, China, deepened to C$3.03 billion from C$2.72 billion.